U.S. 5y5y inflation swaps climb back to year-start levels, narrowing the gap with Eurozone and UK expectations by up to 10bp.
U.S. long-term inflation expectations, tracked via 5y5y swaps, have rebounded to early-year levels after a 15bp dip during the conflict. The shift reflects eroding disinflation premia as markets price prolonged disruption risks, aligning U.S. expectations more closely with Europe’s.
Eurozone and UK inflation swaps remained elevated despite ceasefire prospects, while U.S. data prompted a swift reversal. Analysts anticipate further convergence in the second half, with potential upside of up to 10bp if U.S. expectations match Eurozone levels.
Higher real yields, driven by rising inflation expectations, are seen supporting the USD. Investors are drawn to U.S. Treasuries, reinforcing demand for the dollar despite potential Fed policy shifts.